Fast Company–Yes, Layoffs Cost More than Regular Turnover and Save Less than Flexible Alternatives

Monday, during an interview on Public Radio International’s The Takeaway, I discussed flexible alternatives to minimize layoffs because, the research shows, managers may think that firing someone who makes $50,000 a year saves $50,000 a year, but really it’s costing them between $75,000 and $125,000.

Using flexibility, such as reduced schedules/salaries, adding unpaid vacation days, furloughs/sabbaticals, etc., is not only the least costly approach to reduce labor expenses, but it preserves the profit-generating productivity and engagement critical for recovery–personally, organizationally, nationally and globally.

This conclusion in based on the detailed comparative cost/benefit analysis between voluntary turnover, layoffs and flexible downsizing that I conducted in preparation for The Takeaway interview and can be found in the table below (sorry for the size, still figuring out how to embed tables).  My primary sources for the analysis were Dr. Wayne Cascio’s book, Responsible Restructuring, and a variety of articles and blog posts in which experts agree the cost of voluntary turnover ranges from 150% of salary to 250% of salary, with a detailed listing of costs by William Bliss, of Bliss & Associates.

As I said in the interview, some layoffs may be necessary especially in industries that are restructuring; however, as the comparative cost benefit analysis below illustrates there are actually even more costs associated with layoffs than voluntary turnover.  These are considered by business as one-time, non-recurring costs, however, they are costs nonetheless. Therefore, it’s not surprising that research shows layoffs are a short-term fix with little or no long term profit payoff:   (Click here for more)